Thursday, March 20, 2008

So what's going on with Focus Media?

I'm definitely not any kind of financial expert, so can someone please explain what's going on with Focus Media's stock price? I know the US (and world) markets have had a bad week, but I don't understand how a company that had $390M in revenue last year, gross profits of $130.5M (which makes for a staggering 33% operating margin), average quarterly revenue growth of nearly 150% and 2007 growth in excess of 170% got so hammered down these last few days?

Granted they still have a market capitalization north of $4 billion, and their trailing P/E, at 29.77, is higher than the S&P average, for example, but we're talking about a five year-old company that has only been trading for 2 1/2, has been consistently profitable and has posted triple-digit growth rates the past three years. Oh, and they just bought their biggest competitor this January.

So it seemed like everything wass coming up roses for Focus, and then all of the sudden -- WHAM! In the course of about two days, their stock lost 25% of its value. The biggest negative that I can find -- and this is digging fairly deep -- is that there have been allegations that the company's mobile unit has been sending wireless spam messages, which is a big no-no in Communist China. Forget for a second that the mobile unit only accounts for a small percentage of revenue (though it could be a big growth area), and that nobody has actually come out and said that yes, this is what's happening.

I know traders are especially skittish right now, but there really seems to be a lack of understanding of the massive size, reach and importance of the global advertising market, and especially the the true value of the real estate that Focus has secured with their 100,000+ screens, digital billboards, and numerous other messaging devices. Between the 2008 Olympics and China's shift toward a consumptive economy, it seems like they have plenty of short- and long-term growth prospects that would justify a far higher P/E.

And before you ask, no, I don't own any FMCN stock. But at around 30 bucks a share, I might have to start buying :) Unless there's something really obvious and important that I'm missing (which is entirely possible). If that's the case, I'd love to know about it.

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David Weinfeld said...

Hey Bill,

Great post. Having previously worked at one of the world's largest financial institutions, I am happy to offer insights as to the reasons behind the precipitous fall of Focus Media's stock price. The truth of the matter is that the recent pull back in Focus Media's share price is in no way the result of poor performance or irresponsible management.

Focus Media's share price is just one of many casualties resulting from the downturn in the economy and the financial markets as a whole. Overall, Focus Media is performing strongly and is experiencing fantastic growth.

For more information on Focus Media's share performance, I wrote an expanded post on my blog, Digital Signage Insights:

-David Weinfeld
President, WA Media Group

David Weinfeld said...

At the time of my post, Focus Media (FMCN) was trading at $33.25.

Currently, the stock is trading at $35.26.

A market increase of 6.05%

I hope you all bought in.